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Chinese investments in the United States reached a new record in 2016, more than tripling the previous year’s. However, the pace of investments has begun to cool in 2017, following a crackdown in China on capital outflows.

In reaction to massive capital outflows and the resulting downward pressure on the Chinese currency, Beijing tightened its controls on many outbound mergers and acquisitions (M&A) deals, writes research firm Rhodium Group in a recent report.

In particular, outbound investments in real estate, entertainment, and deals outside investors’ core businesses are now under much more scrutiny, and Chinese investors, wary of having their deals struck down by Beijing, have been more reluctant to bid.

With these recent changes, the pace of newly announced investments in the United States has already begun to slow.

“In the first quarter of 2017, the volume of announced acquisitions fell by 20 percent compared to the fourth quarter of 2016. The combined value of announced deals decreased by about half,” stated the Rhodium report.

Chinese Buying Spree

The investment activity that peaked last year started in 2010, when China relaxed rules on outbound investment for institutional investors in order to expand its political and economic influence abroad.

Since 2010, Chinese companies have invested more than $100 billion in the United States across a wide range of industries, with the real estate and hospitality industries attracting nearly 30 percent of the total.

Capital flight from China skyrocketed in 2016 in particular, with mounting economic problems at home and a devaluation of the yuan.

Last year alone, Chinese firms invested a record $46 billion in the United States. The huge jump in investment was driven by a significant number of mega deals, including aviation and shipping giant HNA’s acquisition of U.S. technology and supply chain company Ingram Micro for $6 billion.

The HNA logo is seen on a building in Beijing on Feb. 18, 2016. (GREG BAKER/AFP/Getty Images)

And U.S. real estate, which is considered a safe haven, was the biggest beneficiary of Chinese investments. The top deals included Anbang’s purchase of 15 properties from Strategic Hotels & Resorts for $5.5 billion and HNA’s $2 billion acquisition of Carlson hotels.

Foreign direct investment by U.S. firms in China, by contrast, stayed flat compared to previous years, at $13.8 billion. Hence, the gap between Chinese investment in the United States and U.S. investment in China widened dramatically last year, stated the Rhodium report.

U.S. Real Estate as Safe Haven

The easing of restrictions over the past few years allowed insurance companies based in China to invest up to 15 percent of their total assets in offshore real estate.

As a result, U.S. real estate, particularly hotels and office spaces, has become attractive for Chinese insurers seeking high returns and portfolio diversification.

Investment in the U.S. real estate market soared after the stock market crash in China in June 2015. The sharp decline in returns at home led investors like Anbang Insurance, China Life Insurance, and Fosun Group to look for safe havens.

However, since the tightening of capital controls in late 2016, “the pace of real estate investment has slowed markedly,” stated the Rhodium report, “but activity has not collapsed.”

There are few pending real estate deals, including HNA’s acquisition of a stake in Hilton for $6.5 billion. HNA also bought 245 Park Ave. in New York for $2.2 billion, one of the highest prices ever paid for a Manhattan office tower.

Uncertainties Ahead

While Chinese investment in the United States continues, it is unlikely to reach the levels seen in 2016, as Chinese investors are now more cautious, according to experts.

“Up until six months ago, corporate investors from China were aggressively outbidding their rivals in cross-border M&A deals,” said a senior executive at a U.S. private equity firm, who wished to remain anonymous.

But for the last six months, investors have been less active, he said. Transaction volume fell by 12 percent in the United States in the first quarter of 2017, according to the real estate firmJones Lang LaSalle.

“For the first time in two years, New York has lost its spot as the world’s most traded city. Leading the pack is London, regaining the spot it lost in 2015,” said an Jones Lang LaSalle report released in April.

According to another report by real estate brokers Cushman & Wakefield, Beijing is blocking all deals involving investments of more than $10 billion until September 2017, in an effort to regulate international investments.

In 2016, 62 percent of the investments abroad were over $1 billion. Now, M&A transactions valued at more than $1 billion that are outside Chinese investors’ core businesses, and foreign real estate deals by state-owned companies, are being restricted, leading to the investment lag in recent months.

Chinese investments in the United States reached a new record of over $45 billion in 2016—three times the previous year’s total.

Planned M&A (mergers and acquisitions) activity and the U.S. economic outlook suggest that 2017 may be another boom year. But with the changing political climate, Chinese investment may not be all that welcome anymore.

“Chinese investors are receiving an outsized amount of scrutiny from government regulators. … There are numerous lawmakers in Congress who are pushing for greater scrutiny of Chinese deals, in particular,” said Daniel Rosenthal, associate managing director at the consultancy Kroll. Rosenthal previously worked for the Obama administration, advising the president and national security advisers.

Rising Chinese investment in the United States over the last five years has increased the number of reviews by the Committee on Foreign Investment in the United States (CFIUS), a federal interagency body that reviews investments for their effects on national security.

Chinese Investments at All-Time High

The capital flow from China to the rest of the world soared in 2016 because of economic problems at home and a devaluation of the Chinese currency. The United States has become the largest beneficiary of Chinese capital flight, according to a report by the research firm Rhodium Group.

“Cumulative Chinese direct investment in the U.S. economy since 2000 now exceeds $100 billion,” states the report.

The number of industries targeted by Chinese investors also increased in 2016. The real estate and hospitality industries accounted for 37 percent of total investment.

Chinese companies were responsible for most of the investment through mergers and acquisitions. Chinese companies also expanded through greenfield projects, where companies build their foreign operations from scratch. But the scale of such projects remained small compared to buying out already established companies.

Investments by Chinese state-owned companies accounted for 21 percent of the transactions, and strategic investments exceeded those with purely financial objectives.

If the economic circumstances don’t change, Chinese investment in U.S. assets will continue to grow this year.

“The U.S. growth outlook is brighter than in Europe and other advanced economies; and anticipation of further dollar appreciation against the Chinese yuan … increases the rationale for adding U.S. assets,” the Rhodium report states.

In addition, there are $21 billion worth of M&A deals pending involving Chinese companies, and greenfield projects worth a combined $7 billion have been announced, according to the report.

However, political uncertainties in China and the United States may throttle the M&A boom. Beijing recently made it more difficult to get approval for overseas investments, presumably to curb capital outflows.

And in the United States, political and regulatory scrutiny expanded because Chinese investments may present a threat to national security.

CFIUS Under the Trump Administration

President-elect Donald Trump is widely expected to take a harder position on U.S. national security matters than the Obama administration.

However, openness to foreign direct investment has been a key policy for the U.S. government for at least half a century.

“Every president since Carter has issued a formal statement confirming the United States’ openness to foreign direct investment [FDI]. There are reasons to believe that the incoming administration will continue this policy,” the law firm Covington & Burling LLP stated in a post on its blog.

And it is too early to speculate whether a Trump administration will change the review process or expand the mandates of CFIUS, according to the law firm. CFIUS, chaired by the treasury secretary, is an inter-agency committee that reviews foreign acquisitions for national security threats.

However, there are a few areas that may require some immediate changes.

For example, the Trump administration can expand the breadth of the transactions that CFIUS can review, said Rosenthal.

“CFIUS currently does not have an authority to review greenfield investments. … A company can start up a new business within the United States, and they could hire people from other companies, offer competitive compensation, and slowly build a U.S. company that does things that are sensitive to the U.S. government,” he said.

In addition, CFIUS does not have jurisdiction over foreign investments in foreign companies that sell goods and services to the United States or own American subsidiaries. Under the CFIUS statute, only the president has the authority to block such transactions.

In December last year, President Barack Obama blocked a deal that involved a Chinese company buying Germany’s Aixtron, a leading supplier of semiconductor equipment. Aixtron has a U.S. subsidiary and the merger of these two companies would be a risk to national security, according to CFIUS.

However, it is highly unlikely that the new administration will reopen prior CFIUS reviews unless there is a material misrepresentation, according to Rosenthal.

CFIUS includes representatives from 16 U.S. departments and agencies, including the departments of Justice, Commerce, Defense, Energy, and Homeland Security. And there is a balance of power between economic and security agencies within the committee.

However, the new president’s appointments in these agencies may give more voice to the national security arguments and dampen the voices of economic investment and open FDI, Rosenthal said.

“If Trump appoints assistant secretaries at the various agencies who are inherently more skeptical of foreign transactions, then that could shift the balance toward the national security side.”

As it is the case with any kind of policy directives in China, this leads to overpricing and malinvestment. Or why else would Shanghai SIPG pay $61.4 million for the less-than-average Brazilian player Hulk? Remember his non-performance at the world cup in Brazil 2014?

To get an idea of how large a price Shanghai SPG paid, consider the cost of the most expensive Chinese national. Linpeng Zhang, who plays for Guangzhou Evergrande Taobao, is only worth $1.3 million, according to Transfermarkt.com.

And why else would Chinese appliance and car manufacturers buy whole European soccer clubs? It may not be just the policy directive. This may be a win-win in terms of both politics and economics for the Chinese.

The most valuable Chinese Super League 11, all prices in euros. (Transfermarkt.com)

First, it’s an easy way for these companies to funnel money out of the country. Chinese companies are buying up everything that is not bolted down, bidding for $119 billion worth of foreign companies in the first five months of 2016 alone.

Second, it is true that president Xi Jinping is personally pushing the initiative. So everyone who is tagging along wins some browny points and gets to increase their foreign asset holdings at a time when the Chinese economy is slowing and the currency may devalue at any moment.

The numbers are small in comparison, but nonetheless remarkable. Since 2014, Chinese firms in real estate, retail, manufacturing, as well as energy have invested $1 billion in 10 European soccer clubs like Manchester City and Internationale Milano.

Players

As for players, the Chinese Super League spent $145 million on players this year and a whopping $443 million during last year’s transfer windows according to data supplied by Transfermarkt.com.

Hulk is the most valuable player and other notable transfers include Colombian forward Jackson Martinez ($46 million) from Atletico Madrid and Chelsea’s Ramirez ($31 million).

Despite the $600 million spent, however, Transfermarkt.com only values all of the Chinese Super League’s players at $360 million and the league pulls in a mere $200 million in TV revenues for five years. So the Chinese companies and super-rich behind the clubs have to fill in the gap in revenues (wages cost money too), which they gladly do.

Chinese companies and investors have a reputation for overpaying for anything from Vancouver real estate to Australian wineries, but why?

If the assessment of hedge fund managers like Kyle Bass is true, holding Chinese bank deposits may result in higher losses than overpaying for a European soccer club or a Brazilian player.

He thinks China will face a banking crisis and a devaluation of the currency: “It’s going to cost them 30 percent of GDP. Loss given defaults will be more than 80 percent, they are going to lose $3 trillion in bank capital, they only have $2 trillion in there,” he said in an interview with RealVisionTV.

If his scenario holds true, a diversified portfolio of gold, bitcoin, Vancouver real estate, and some soccer players should weather the storm.

Chinese investments in the United States reached a new record level of $18.4 billion in the first half of 2016, up three times compared to the same period last year, and even higher than all of last year ($15.3 billion).

Strong mergers and acquisitions activity accounted for the majority of the incoming Chinese capital, said research firm Rhodium Group.

With the stock market crash in China that began in June 2015, the flow of outbound investment from China to the rest of the world soared. With growing uncertainty about exchange rates and the economic and political outlook, investors are seeking to stash away capital in safe havens like the United States.

“The rapid growth of Chinese outbound (Foreign Direct Investment) FDI in the first half of 2016 has triggered political reactions both in China and host economies,” Rhodium stated.

This capital flight has led to a further deepening of FDI deficit in China’s balance of payments. So Chinese regulators are increasing their scrutiny of outbound investment transactions.

“China’s leadership continues to pledge its commitment to further external liberalization, but concerns about capital outflows have clearly grown and the State Administration of Foreign Exchange (SAFE) and other regulators have taken informal steps in recent months to ‘manage’ the outflow of foreign exchange,” the research firm said.

The appetite of private Chinese companies for U.S. investments remains high.

— Rhodium Group

This has increased concerns about the ability of Chinese companies to close deals, driving up risk premiums and reverse break fees for Chinese buyers.

A sharp uptick in the Chinese deal-making activity in the United States is also keeping U.S. regulators busy.

The Committee on Foreign Investment in the United States (CFIUS), reviews foreign acquisitions for national security threats and China for the last few years has been in the top spot for covered transactions (transactions that result or could result in control of a U.S. business by a foreign person).

A number of transactions have run into delays because of CFIUS and other regulatory reviews including Syngenta, Ironshore, Fidelity & Guaranty Life, according to the Rhodium report.

Strategic Versus Financial Investments

The Chinese investments in the United States in 2016 were spread across a wide range of sectors including entertainment, consumer products and services, technology, and automotive.

Besides M&A activity, Greenfield projects, where companies start building their operations from scratch, were also strong, driven by capital-intensive projects in real estate and manufacturing.

More than 80 percent of all Chinese FDI transactions in the United States in 2016 are considered as strategic investments (firms investing in their core areas of business). The largest strategic investment was Haier’s acquisition of GE’s home appliances business for $5.6 billion, in consumer products sector. And the second largest was Wanda’s purchase of Legendary Entertainment for $3.5 billion, in the entertainment sector.

Other sectors attracting large investments include information and communication technologies (acquisition of Omnivision Technologies by a Chinese consortium for $1.9 billion) and automotive (Ningbo Joyson’s acquisition of Key Safety Systems for $920 million).

Financial investments (investments for financial returns) amounted to $3.5 billion, or 20 percent of total investment in 2016, according to Rhodium. Most of them were driven by private investors buying commercial real estate assets in major coastal cities.

Outlook

The value of announced but not yet completed Chinese investments was still close to an all-time high of $33 billion at the end of June 2016, according to the report. Major M&A transactions include HNA Group’s $6 billion bid for technology distributor Ingram Micro, Anbang’s $6.5 billion acquisition of Strategic Hotels & Resorts, and Apex Technology’s acquisition of Lexmark for $3.6 billion.

There are also pending investment in real estate development projects in New York and California.

“This makes it likely that regulators will continue or even increase scrutiny of outbound FDI transactions, particularly for deals involving large amounts of foreign exchange and those with a financial nature.”

Yahoo! reached a deal to sell a 48.6-acre corporate site in California to the Chinese technology firm LeEco, according to the reports by Silicon Valley Business Journal and Investor’s Business Daily.
The site is located in Santa Clara, near the heart of Silicon Valley and four miles away from the company’s Sunnyvale headquarters.
Yahoo paid $106 million for the land back in 2006. The land had entitlements to build roughly 3 million square feet of office or research and development space with a potential to accommodate more than 12,000 workers. But the company never had the chance to begin construction.
Yahoo site near Levi’s Stadium in Santa Clara in California (Google Map)
The site is near the Levi’s Stadium, home of the San Francisco 49ers football team. Since the company’s revenue has dropped steadily from a peak in 2008, it struck a deal with the football team to use the area as an off-site parking lot, according to the Business Journal.
Yahoo! has struggled to build online and mobile advertisement revenue and lags behind its rivals Google and Facebook. The Company’s board recently hired three investment banks to evaluate potential bids for its Internet operations in February.
As part of its restructuring efforts, Yahoo! also said it began to explore selling nonstrategic assets, such as patents, real estate, and other noncore assets. Through these efforts, the company hopes to generate between $1 billion and $3 billion in cash, according to a Wall Street Journal report.
Yahoo! stock performance over the last year. (Bloomberg)
Headquartered in Beijing, LeEco is a Chinese technology company and one of the largest online video companies in China.
Founded in November 2004 by Jia Yueting, LeEco offers a range of products including smartphones, televisions, mountain bikes, and more recently, electric cars.
LeEco owns Los Angeles-based company Faraday Future an electric car startup, which intends to compete with Tesla Motors. The company is also spending $1 billion to build a production facility in Nevada, which will be a 3 million square foot, 900-acre development.

The flow of outbound investment from China to the rest of the world soared in 2015. With rising economic problems at home, Chinese companies now prefer assets in developed markets like the United States.
Chinese investments in the United States reached a new record level of $15.7 billion in 2015, up 30 percent from last year, according to Rhodium Group. Mergers and acquisitions (M&A) activity was particularly strong with 103 deals worth $14 billion. Greenfield projects, where companies start building their operations from scratch, also reached an all-time high of $1.8 billion in 2015.
New York and California were the most popular states, attracting more than half of the funds during that period.
The industry composition of Chinese foreign direct investment in the United States was more diverse in 2015 compared to previous years. Investments by Chinese companies spread across a wide range of sectors including real estate, financial services, information and communications technology, automotive, health and biotech, energy, and entertainment.

US Real Estate Seen as Safe Haven
With the stock market crash in China that began in June 2015, Chinese are investing even more in U.S. real estate, which is considered a safe haven. The real estate and hospitality industries attracted 39 deals, accounting for 33 percent of the total sum.
The largest transaction in real estate in 2015 was Anbang Insurance’s $1.95 billion acquisition of the New York Waldorf Astoria hotel. This acquisition set a record for the largest acquisition of a U.S. real estate asset by a Chinese buyer.
Investors have also been motivated by the shift in the Chinese regime’s policy to promote outbound investments. Regulations prohibited Chinese insurers from buying foreign property in the past. However, they can now invest up to 15 percent of their total assets in offshore holdings including real estate.
Investor Caught Up in Beijing Probe
Fosun Group headquarters in Beijing. Fosun acquired two U.S. insurance companies in more than $2.2 billion deals. (GREG BAKER/AFP/Getty Images)
The U.S. financial services sector, particularly insurance was the second largest sector attracting Chinese investments in 2015. Fosun Group, led by Chinese billionaire Guo Guangchang, acquired Ironshore Insurance and Meadowbrook Insurance in more than $2.2 billion deals.
Guo, who calls himself a student of Warren Buffett, has been aggressively buying New York office buildings as well as companies in Europe and North America, including Club Med and Cirque du Soleil.
He is one of the Chinese tycoons being investigated in the anti-corruption campaign of Chinese Communist Party (CCP) leader Xi Jinping. He disappeared for few days in December 2015 and then reappeared after assisting authorities, according to media reports. He was suspected of enjoying intricate ties with the family and key aides of former CCP leader Jiang Zemin.
Spike in Chinese Bids in Semiconductors
The information and telecommunications technology (ICT) sector has also remained a major attraction for Chinese companies in 2015. In ICT, 26 transactions were completed, totaling $1.3 billion in deal value.
Semiconductors is a new frontier, with two large deals completed: OmniVision Technologies and Integrated Silicon Solution Inc. State-owned Tsinghua Unigroup has also announced its interest in acquiring U.S. chipmaker Micron for $23 billion. However, U.S. authorities may block the deal due to national security concerns.
Another surprising development was the return of Chinese investments in upstream oil and gas after hitting a five-year low in 2014. Chinese real estate developer Yantai Xinchao announced it acquired oil fields in west Texas for $1.3 billion.
Chinese state-owned enterprises (SOE) also have a considerable share in the investment flows. The SOEs invested $2.6 billion in the United States, accounting for 17 percent of the deal flow in 2015.
Security Reviews for Chinese Acquisitions Rose
The rising interest of Chinese investors in the United States for the last five years has increased the number of reviews by the Treasury for national security threats.
The Committee on Foreign Investment in the United States (CFIUS), which reviews foreign acquisitions for national security threats, has recently released its 2014 annual report. For the third year in a row, the report puts China in the top spot for covered transactions (transactions that result or could result in control of a U.S. business by a foreign person).
A sharp uptick in Chinese deal-making activity in the United States and a shift of that interest toward technology has increased CFIUS reviews, according to Rhodium Group.
Outlook
With more than $22 billion worth of pending acquisitions by Chinese investors in the United States, the deal pipeline was at an all-time high at the beginning of 2016.
However, the political and economic environment in China could weigh on China’s global deal making in 2016, according to Rhodium Group.
The volatility in China’s markets and continued downward pressure on the currency have forced Chinese officials to further tighten capital controls to stop the massive capital outflow. Going forward, these measures can impact the ability of Chinese companies to conduct outbound foreign direct investments.
Furthermore, China’s anti-corruption crackdown on private companies can impact their appetite for deals in the United States and elsewhere.

NEW YORK—With China’s economy slowing and its stock market behaving like a roller coaster, more Chinese investors are looking into safe investments, like the U.S. real estate market.
New York in particular has become a favorite place for Chinese investors to stash their cash.
“We are at the beginning of a very exciting period in our relationship between Chinese buyers, real estate agents, and developers in New York City,” said Shaun Osher, CEO of CORE, Manhattan’s leading real estate broker.
Chinese homebuyers in the past had chosen urban West Coast areas, such as Los Angeles, San Francisco, and Seattle, because of a strong Hong Kong ex-pat population. Now they are moving to the East Coast and Texas, according to the Asian Real Estate Association of America (AREAA).
“There has been a long romance between New York real estate and Asian buyers, particularly Chinese,” said Louise Phillips Forbes, broker at Halstead Property.
“New York is a safe haven. There is an opportunity to expand your wealth here. You can look at all the trends historically from September 11 to the financial recession. Investors know, over time, we have sustained their assets and the values have continued to expand,” said Forbes at a Nov.2 AREAA conference.
In Manhattan, the median price for houses rose 6.3 percent from last year to $982,958 in September 2015, according to StreetEasy. And in Brooklyn the median price for houses climbed 9 percent from last year to $545,139.
“The numbers are staggering,” said Nikki Field, broker and global adviser at Sotheby’s. “New York is a luxury brand. People started hearing and learning that there were great opportunities here, particularly for wealth preservation. You sell your property when you want and at the price you want.”
Chinese investors bought $28.6 billion in American residences last year, according to National Association of Realtors (NAR). They are No. 1, accounting for 28 percent of all foreign purchases.
The homes they acquired tended to be on the luxury side; the average house in the United States sold for $255,600, but Chinese buyers spent on average $831,800 for their American homes.
Although Chinese enjoy high returns in the New York real estate market, they are long-term buyers and prefer to keep their properties, said Field.
Most Asian buyers choose new developments, especially condominiums in New York City. “They tend to gravitate toward buildings that have a proper amount of light and air,” said Gordon Hoppe, executive vice president of Corcoran Sunshine Marketing Group.

A view of the NYU campus on the southeast side of Washington Square Park at the Henry Kaufman Management Center building. (Benjamin Chasteen/The Epoch Times)

More Reasons to Escape
So far, the top properties for Chinese investors in the United States have been hotels and office spaces, as well as luxury residential.
There are multiple reasons for Chinese nationals to move to the United States. Some want to get their money out of China because of increasing anti-corruption probes. Five years ago the main motive was fear of the future.
“There was the fear of the unknown in China. They wanted to get out for security and safety,” said Michael Kercheval, president and CEO emeritus of International Council of Shopping Centers.
Today, said Kercheval, more are “also looking for quality of life, quality of air, as well as diversification of investments.”
To expand its political and economic influence abroad, China relaxed guidelines on outbound investment for institutional investors. Many affluent Chinese have taken advantage of this and diverted their wealth away from China to politically stable countries like the United Kingdom, the United States, and Australia.
With the stock market crash in China that began in June 2015, Chinese investments in the U.S. residential real estate market have soared. And New York has gained the lion’s share in recent months.
Higher education is the main driver for Chinese investment in New York real estate, according to Diane Ramirez, CEO of Halstead Property. Many parents buy properties around universities for their children.
In addition to housing, Chinese investors are also looking for commercial estate in areas that are attractive to Chinese immigrants. So they chase properties like shopping centers and golf courses in the areas where other Asian immigrants live, said Ramirez.
‘Flushing Is Booming’
Flushing, the commercial center of Queens in New York City and the most popular destination for Asian immigrants, has become very popular for both residential and commercial real estate buyers.
“Although prices in Flushing are lower than Manhattan and Brooklyn, they are still expensive by historical standards,” according to Michael Meyer, president of F&T Group.
Meyer’s company is working on a billion dollar project in Flushing with Rockefeller Group. The project includes luxury residential and office condominiums. “The trend is all of Flushing will start to come up. I think there will be more developments for residential as well as hotels because of that,” said Meyer.
Challenges for Property Buyers
For the near future, experts do not foresee a significant price drop in the New York real estate market. Especially for the lower end properties, the scarce inventory will continue to drive up the prices.
One of the challenges that all buyers face in New York City is the scarcity of inventory. Around 62 percent of the market is rental and the majority of the properties for sale is co-op. “There are very few condos available for sale in New York City, so one needs to make a quick decision when buying a property,” said Shaun Osher.
New York City is the top residential market in the world and many international buyers are competing for the limited supply, said Osher.
Another challenge for property buyers is a shortage of good schools in the city. “We do not have enough great schools,” said Forbes.
So there is a development opportunity for that. Developers are buying air rights of pre-existing schools and building brand new schools. “That is a big trend happening in New York City and we will see that for the next decade,” said Forbes.

NEW YORK—A weaker and more volatile Chinese economy has triggered high levels of capital outflow from the country, and so far, the United States has been the prime beneficiary.
The Chinese overseas investment spree started in 2010, motivated by the shift in the Chinese regime’s policy to promote outbound investments. Since then, a total of $50 billion has been invested by Chinese companies across a wide range of U.S. industries, with real estate attracting $10 billion.
With the stock market crash in China that began in June 2015, Chinese are investing even more in U.S. real estate, which is considered a safe haven by investors.
“Money coming in from China is as strong as it has been. We feel very optimistic that the trend will continue,” said Kathyrn A. Korte, President and CEO of Sotheby’s International Realty.
Chinese investors have been riding the U.S. commercial and residential real estate waves in recent years. Real estate represented nearly 25 percent of all cross border capital investment in the United States in 2014, according to Asian Real Estate Association of America (AREAA) that hosted the “East Meets West—Manhattan Luxury Real Estate Connect” conference on Nov. 2.
Sun Yun, head of network research at Financial Times, said during a panel discussion at the conference that over the past 30 years, Chinese people have accumulated a huge amount of wealth and the majority of that wealth was invested domestically in fund management firms, mines, and properties.
Now the tide has turned.
“The sharp decline in returns at home lead institutional investors and individuals to diversify their investments and look for safe havens. This is very good news for the New York real estate market,” said Yun.
The most attractive real estate destinations for Chinese investors are New York, London, Los Angeles, San Fransisco, and Tokyo according to Christine Zhang from Bank of China. New York and London have replaced Shanghai and Hong Kong, which used to be top destinations for mainland Chinese investors. And in recent months, Houston real estate has become highly attractive as well.
David Friedman, President of Wealth-X called Houston, Texas the new emerging market due to its high appeal to Chinese investors.
So far, the top properties for Chinese investors in the United States have been high-end trophy properties, office spaces, and hotels. Wealthy Chinese were also the largest group of foreign investors in U.S. homes and condominiums in 2014, according to the U.S. National Homebuyers Association.
Chinese investors have started to look for opportunities across a wider range of geographies and a greater variety of asset types with a growing number of Chinese middle class now becoming investors.
The Brooklyn Bridge and the Manhattan skyline at sunset on Dec. 18, 2011. (Benjamin Chasteen/Epoch Times)
Rise of Chinese Middle Class
Growth of the Chinese middle class is also expected to drive outbound investment over the next few years. According to Yun, half of families in Shanghai own more than one house.
Real estate reform in 1998 allowed Chinese residents to purchase houses at very low prices, leading many to purchase multiple homes.
“There is a huge population of homeowners in the big cities where the prices have gone up. And the average value of apartments is $500,000,” said Yu.
This high level of home ownership has meant Chinese can now sell off their second or third house and transfer the released funds to overseas. In addition, overseas education is gaining momentum with more middle class willing to send their kids abroad. This trend will provide a support to the U.S. real estate in the next few year, said Yu.
The average home purchase price by Chinese in the United States was around $830,000 as of March 2015, according to National Association of Realtors (NAR).
However, recently there has been an increase in lower price transactions, which is seen as a sign that more middle class Chinese are investing in the U.S. market.
“We see a lot more investors buying in lower price ranges at $2,000-$3,000 per square foot versus the very high-end trophy properties,” said Korte.
Policy Liberation Fuels Investments
Another factor driving growth is the new policy implemented by Beijing that abolished regulatory approvals for most outbound investments, the Qualified Domestic Institutional Investor (QDII) scheme. The scheme currently allows investors to invest in foreign securities markets via fund management institutions.
China is expected to launch a new pilot scheme called QDII2 allowing individuals to invest directly overseas. It will initially be launched in six key cities: Shanghai, Tianjin, Chongqing, Wuhan, Shenzhen, and Wenzhou. Individuals with at least 1 million yuan ($160,000) in financial assets will be allowed to participate.
“If this scheme is launched you will see more investors coming to United States and spending more money on real estate,” said Savio Chan, CEO of US China Partners.
The Chinese regime has been promoting outbound investments to expand its political and economic influence abroad, according to Yu.

Tip of the Iceberg
Another significant segment of investors in the U.S. real estate market are Chinese students.
“China had one child policy for 30 years. One child has a lot of power. They travel and study abroad. And they buy everything to enhance their face” said Chan, who is also the co-author of the book “China’s Super Consumers.”
There are more than 250,000 Chinese university students studying in the United States. International students make up 7 percent of the foreign investment in the U.S. real estate market, according to Chan.
“We only see the tip of the iceberg,” said Henry Tang, Managing Director of Clarett International. In addition to the big potential he sees from Chinese students, he expects more developers from China to invest in U.S. real estate in the future.
According to a study by Cornell University, the Manhattan real estate market tops the list of Asian Capital investment in the United States. Manhattan attracted more than $10 billion Asian investment between 2013 and 2015, followed by Hawaii ($4 billion), Los Angeles ($4 billion), and San Francisco ($1.3 billion)
Creative Financing Through EB-5
Yet another source of growth for the U.S. real estate market are the funds coming though the EB-5 program. Since access to bank loans is getting harder, developers are using the EB-5 money more as a new source of financing.
EB-5 program enables foreign nationals to obtain U.S. permanent-resident status by investing in a U.S. business that creates jobs.
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The flow of outbound investment from China to the rest of the world continues to soar in 2015. The United States remains a key market for the Chinese companies with record level transactions.

Chinese firms invested $6.4 billion in the first six months of 2015 across the United States, according to Rhodium Group, a research company. This Foreign Direct Investment (FDI) in the United States by China was the highest half-year figure on record.

Out of the 88 transactions completed, 53 were acquisitions and the rest were greenfield projects, where companies start building their operations from scratch. California was the most popular state, attracting almost half of the funds during the period.

The real estate and hospitality industries are the favorites with 20 deals, accounting for 65 percent of the total sum. The largest transaction was Anbang Insurance’s $1.95 billion acquisition of the New York Waldorf Astoria hotel, which they completed in February 2015.

Chinese investors have been riding the U.S. commercial real estate wave in recent years, motivated by the shift in the Chinese government’s policy to promote outbound investments, according to Deloitte. With rising economic problems at home, Chinese investors prefer to invest in the U.S. real estate market.

Source: Rhodium Group

The second biggest sector for Chinese investment in 2015 was U.S financial services and insurance. With Fosun’s acquisition of a 20 percent stake in Ironshore, it became the first Chinese company to invest in a sizable U.S. insurance company. Fosun is set to acquire the remaining 80 percent of Ironshore in 2015.

According to Rhodium, Chinese conglomerates are willing to buy U.S. insurance assets in order to gain access to a large pool of overseas capital, customers, and know how.

The information and telecommunications technology (ICT) sector also remains a major attraction for Chinese companies in 2015. In ICT, 19 transactions were completed, totaling $312 million in deal value.

Smaller growth companies in software and IT services have been particularly attractive investments for Chinese funds and large internet companies like Alibaba and Tencent. Semiconductors is another new frontier, with two large deals currently pending: Omnivision and Integrated Silicon Solution Inc.

State-owned Tsinghua Unigroup has also announced its interest in acquiring U.S. chip maker Micron for $23 billion. However, U.S. authorities may block the deal due to national security concerns, according to Reuters.

Investments Took Off in 2010

China’s outbound foreign direct investment spree has started in 2010. Chinese companies have completed 695 transactions, investing $50 billion across a wide range of U.S. industries, since then.

California is the most popular state, attracting 30 percent of the deal flow for the past five years. In terms of deal value, however, Virginia and New York have topped the list.

Source: Rhodium Group

Vital to China’s national interests, the energy sector is at the top of Beijing’s agenda for overseas investment according to a report by the Jamestown Foundation. In line with this strategy, the U.S. energy sector has been the biggest target for Chinese investors since 2010. After Energy come real estate, ICT, agriculture, and food.

State Owned Enterprises Tag Along

Chinese state-owned enterprises (SOE) also have considerable share in the investment flows. Since 2010, the SOEs have invested $17 billion in the United States, accounting for 34 percent of the deal flow. Several recent large-scale projects will continue to support this trend.

The FDI by Chinese SOEs in the United States has reached $13.7 billion in 2015 (year-to-date), including announced deals, according to RWR Advisory Group.

The figure includes state-owned Tsinghua Unigroup’s $3.8 billion bid for a 15 percent stake in Western Digital in October. If finalized, the acquisition would be China’s largest technology investment in the United States to date according to RWR.

Policy Liberation Fuels Investments

China implemented reforms in October 2014 that abolished regulatory approvals for most outbound investment transactions. These steps have contributed to a significant rebound in the deal flow.

The relaxation of foreign exchange rules on June 1st may further fuel this trend according to Rhodium Group. With the new regulation, companies no longer have to apply at the State Administration of Foreign Exchange (SAFE) for approval of foreign exchange transactions. Instead, companies can now conduct this step at their local banks.

“Despite the economic slowdown in China, we have not seen any sign of a slowdown in the outbound investments of Chinese companies. We are busy every day” said Andrew Davenport from RWR Advisory, a company that tracks global business footprints of Chinese state-owned enterprises.